Posts tagged ‘hemp’

State Establishes Framework for Hemp Related Products

Late yesterday evening, we received word that the Governor had signed important legislation which creates a state-level framework for the expanded production of hemp and authorizes products derived from hemp to be legally sold on the state level. The bill takes effect on March 8, 2020.

For credit unions, the bill provides a further comfort level when it comes to opening accounts not just for hemp manufacturers, but for businesses which specialize in selling hemp-related products in the more general sense. The distinction is a key one because, to its proponents, hemp can be used in just about everything ranging from nutritional supplements to hair and beauty products.

Along with the bill signing, the Governor announced plans to hold a “summit” in January to discuss issues related to hemp and marijuana.

The bill is an important step in the right direction. As I explained in this blog, the USDA recently came out with temporary regulations establishing a framework for the federal approval of hemp manufacturing in states where it is already legal. As with so many other developments in this area, the state’s legislation brings to the forefront continuing tension with federal law. The 2018 legislation which removed hemp as a schedule I drug explicitly permitted the US Food and Drug Administration to make an independent determination regarding the proper regulation of hemp-derived products. To date, the agency has not indicated what its ultimate position on this issue will be. By establishing a state-level framework, the legislation brings forth the authority of the US FDA to preempt state law relating to this industry. The state is anticipating this concern by mandating that all the products and individuals licensed pursuant to this framework be New York entities. Whether or not this is enough to avoid federal scrutiny remains to be seen.

December 10, 2019 at 9:09 am Leave a comment

Where NY Stands on Hemp Legalization

When I last talked about this subject, I promised you that I would seek additional information about the current state of the law regarding hemp production now that it has been removed as a schedule I drug. The bottom line is this: those of you who have relationships with authorized growers and processors as a result of 2014 changes to the law can continue with those relationships. However, for those of you who do not have those relationships, it will probably take several months before entities can begin legally growing hemp in New York State.

As I talked about in a previous blog, in 2014, the federal government authorized states such as New York to offer hemp growers the opportunity to work with academic institutions. In 2018, the federal government legalized hemp but mandated that the U.S. Department of Agriculture establish a legal framework for states wishing to authorize the industry. The USDA has now issued temporary regulations and is accepting comments. The Association will be commenting.

After these regulations are finalized, New York State will have to promulgate its own regulations, as well as get approval for its program from the USDA. This process will take several months to complete, and until the process is done, the broader hemp authorization is effectively blocked.

On a practical level, here are my takeaways given the state of affairs. Most importantly, for those of you operating under the 2014 authorization, the status quo remains in effect. For those of you seeking to work with producers authorized under the 2018 legislation, there is much you can start to do to prepare for the legalization, such as due diligence and establishing policies and procedures which you can finalize and adjust once the regulatory framework has been set. However, what you should not do is assume that hemp is legal for all purposes in New York State right now.

Second Chance Guidance Finalized by NCUA

Here’s an important one for your HR people.

At its board meeting yesterday, the NCUA finalized new guidance explaining steps you should take when you find out a job applicant or existing employee has been convicted of a crime which may disqualify them from employment in your credit union. As I explained in this blog, these changes are long overdue. On a more cautious note, more and more scrutiny is being placed on employment practices as they relate to people who have been convicted of crimes. Read this guidance and update your policies and procedures accordingly.

Do we really need all Christmas music all the time?

I freely admit to being a glass half empty kind of guy. That being said, I think my cynicism is fully justified when it comes to the onslaught of 24 hour Christmas music a month and a half before the big day. Don’t get me wrong, if you want to listen to 24 hours of Christmas, get some headphones and satellite radio, and go crazy. But for those of us who watch too many sports, we are already being inundated with a Christmas season that now begins the day after Halloween. Too much Christmas too early takes too much fun out of what should be an upbeat time of year.

On that happy note, happy holidays, and enjoy your weekend.

November 22, 2019 at 9:49 am Leave a comment

Hemp Regulations Bring Banking Issues to the Forefront

On October 29th, the USDA issued interim final rules providing a framework for the legal protection and distribution of hemp in states that choose to legalize it. The long awaited regulations bring about a new stage in what promises to be a phonetic period for compliance innovation as financial institutions begin to provide banking services for products related to marijuana.

What exactly is being legalized?

Up until recently, the distinction between hemp and marijuana did not matter. Both were classified as Schedule I drugs under the Controlled Substances Act. In the 2018 Farm Bill, Congress declassified hemp and allowed it to be produced in states choosing to legalize it. The key difference between hemp and cannabis sativa is the level of THC contained in the leaves of these closely related plants. A THC level in excess of .03 is considered marijuana, while anything below that is considered hemp.

Last week’s regulations provide the framework that states like New York need to start developing the industry consistent with the federal guidelines. Many of us who have followed the issue closely have been surprised that the USDA did not move more quickly to promulgate the proposed regulations. The USDA got the message because it took the unusual step of issuing interim proposed final regulations. This means that there is now a legal framework for states to begin submitting their hemp regulation plans, even as the USDA accepts comments on these proposed regulations. Remember, we are dealing with a crop, and farmers need time to plan in advance of the growing season.

We should also expect a flood of additional guidance from banking regulators now that the USDA has taken this important step. The NCUA issued this initial guidance in August 2019, in which it promised to “issue additional guidance” once the USDA’s regulations are finalized. NCUA should start issuing that additional guidance even though it can still be modified.

On the state level, New York has advocated for financial institutions to provide financing for hemp farming since 2014. The next step is for the state to issue a proposed plan to the USDA. One issue which I am researching and will update you on in a future blog is whether the state has to pass legislation legalizing hemp production beyond the 2014 pilot program.

For those of you who might be interested in providing banking services for hemp producers and hemp related businesses, now is the time to finalize your compliance plans. These plans will be more difficult to implement on an ongoing basis than they will be to put down on paper. For example, since the distinction between hemp and marijuana comes down to the THC level, it is absolutely crucial that any business you are dealing with have appropriate procedures in place to monitor its plants and dispose of marijuana.

Finally, even if you have no desire to get involved with this business, it will impact your credit union. I expect your typical community farmers market to become a hotbed of local producers using hemp as a key ingredient in their products. When these local businesses come to open an account, what procedures are you going to have in place to ensure that their products are legal? These and other questions promise to make this a subject of legal and compliance debate for years to come.

November 5, 2019 at 9:13 am 4 comments

Hemp, Opioid Guidance Issued


Two recently issued guidance documents, one from FINCEN the other from NCUA, are intended to provide assistance  to credit unions and other financial institutions in ensuring  that their BSA programs appropriately address the impact of these drugs on banking services. I’ll leave it up to you to decide for yourselves how helpful you actually find them.

First, there is the interim guidance issued by the NCUA providing an update and overview of the legality of providing hemp-related banking services. The guidance was issued as NCUA and other banking regulators face increasing pressure from Members of Congress who continue to hear complaints from home state hemp farmers in states like Kentucky that banking services are still difficult to secure.

The confusion on the part of the famers stems from the fact that late last year Congress included removing hemp from the Schedule I list of controlled substances in the 2018 Farm Bill. However, even though hemp is no longer on the list, the Department of Agriculture is responsible for promulgating regulations outlining the responsibility of states and Indian tribes that wish to make hemp production legal.

Furthermore, under the 2018 law, states have the right to decide whether or not hemp is going to be legal in their jurisdictions. Nothing can really happen without the Department of Agriculture coming out with the regs. Of course, Congressmen could simply explain that to their constituents, but it’s so much easier to push the blame onto banking regulators and their lawyers.

By the way, let’s remember that hemp is not cannabis, even though it is a closely related cousin. As a result, even when hemp is being legalized, an important part of your compliance mission will be to make sure that you are dealing with companies providing legal hemp products and not companies trying to sneak illegal cannabis in through the back door.

The second guidance, issued by FIN-CEN, is intended to give financial institutions assistance in detecting and reporting suspicious activities related to opioid production and distribution. It does this by highlighting the red flags commonly associated with the sale of these drugs “by Chinese, Mexican and other foreign suppliers.”

On that note, enjoy your day.

August 22, 2019 at 9:24 am Leave a comment

Farm Bill Legalizes Hemp Farming: Why It Matters To CU’s

It’s not often I get to talk about the Farm Bill in this blog but contained within its 1,400 pages is an important provision legalizing hemp in states that choose to authorize its farming and production. States including New York have been urging banks and credit unions to provide banking services to hemp farmers.

Hemp is a close cousin of the cannabis plant but it has a tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis. Proponents of its production believe that it has many potential benefits ranging from skin care products to stronger ropes. Like marijuana, its production and distribution has been illegal as a matter of federal law for decades but since 2014, federal law has permitted hemp to be produced in tightly controlled settings.

Although cannabis legalization has gotten most of the attention, states such as New York have urged credit unions and banks to help fund hemp farming and hemp has found a champion in the form of Senate Majority Leader Mitch McConnell whose Kentucky farmers  see hemp as a potential growth crop. But banks and credit unions have been reluctant to do so because of the continuing federal prohibition.

Section 10000.111 Section G of the Farm Bill authorizes states to submit plans for the legal cultivation of hemp. As part of the plan, the interested states will have to demonstrate the procedures they are going to use to maintain “relevant information” regarding land used for hemp cultivation as well as the procedures it is going to use to test THC concentration levels of the hemp produced.

For too long now credit unions and banks have been having to deal with the federal state divergence on marijuana legalization. For what it’s worth, I now believe more strongly than ever that Congress will move to legalize cannabis production as a matter of federal law in states where it is legal within two years. I also believe that the framework Congress has just put in place provides a framework that can easily be adopted for legal cannabis. This means that credit unions and banks will have experience in the type of due diligence that they will have to perform  if they choose to do cannabis banking.

Pilot Program To Examine Better Ways of Coordinating State and Federal Examinations

In other potentially big news today, NCUA announced that it is implementing a pilot program with six state banking regulators in which NCUA will experiment about the best ways to coordinate federal and state examination procedures. Honestly one of the biggest deterrents to being a state charter is the prospect of facing two examinations: one from your primary state regulator and the other from NCUA which gets to examine state chartered credit unions because of its oversight of the Share Insurance Fund. Any steps NCUA can take to lay out as organized and clear-cut a process as possible is in everyone’s interest. I hope we’re told how these pilot programs turn out.





December 13, 2018 at 9:33 am 1 comment

How Hemp and Marijuana Banking Differ

So much attention has been paid to the issue of marijuana banking that it is easy to forget that there are important distinctions between hemp and marijuana. These range from the product itself, to the political support hemp enjoys, as opposed to its cousin cannabis. For reasons I’ll get into a little later, these distinctions are important for those of you considering getting involved in hemp banking.

First, hemp has friends in high places. From Kentucky, Senator Mitch McConnell personally championed legislation in the Farm Bill which legalized hemp albeit for very specific persons. Under §7 USC 5940, colleges and universities can cultivate industrial hemp if the industrial hemp is grown or cultivated for research purposes under an agricultural pilot program and the growing or cultivating of industrial hemp is allowed under the laws of the State in which such an institution of higher education or State department of agriculture is located and such research occurs. In other words, not only does hemp enjoy big time political support, but there is actually federal legislation removing it from the Controlled Substances Act, albeit for very limited purposes.

“This is great Henry, but what exactly is hemp anyway?” From what I can tell, hemp is the equivalent of the low-alcohol alternative to its cousin cannabis. For example, the law defines industrial hemp as a “part of a Cannabis Sativa L. and any part of such plant, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” I have no idea what that means beyond reading that. The tetrahydrocannabinol concentration is what puts the wacky in the wacky weed.

What implications does this have for Bank Secrecy Act purposes? Well, if you are one of the lucky few banks or credit unions that are actually provide banking services to one of these legal, educational institutions cultivating hemp, then obviously you are in the clear. That being said, of course you should enhance due diligence to make sure that the project you are funding really is authorized and that the product being grown really is hemp.

But things get a lot murkier once we get into the issue of products being produced that include hemp and hemp seeds, particularly when such products aren’t grown under the narrow circumstances laid out by federal law. As it stands right now, this hemp is still subject to the Controlled Substances Act and is as illegal as traditional marijuana. That being said, hemp carries with it, few of the potential downsides that marijuana does. For example, it can be used in a variety of legitimate products ranging from rope to skincare. In short, you have many of the same risks when it comes to most hemp cultivation businesses that you would have when it comes to marijuana-related businesses. But when you do the cost benefit analysis, you clearly have fewer risks when it comes to hemp.

I would follow New York State guidance as well as the Department of Treasury’s still-active FinCen guidance and conduct extensive due diligence with an emphasis on being able to track the hemp from its seed to sale. Remember, even if you do this, there still remains the issue of whether or not the Federal Reserve will continue to give your credit union access to the Federal Reserve system. Again, common sense would tell you that hemp and marijuana should be treated differently, but unless you get clarification on that point, your commonsense may get you nowhere.

To date, the New York State Department of Agriculture and Markets (“NYDAM”) has issued 123 permits to individuals and entities researching industrial hemp and products derived from industrial hemp. The projects, which are regulated through agreements with NYDAM, engage in research concerning the cultivation, the many uses and marketing of industrial hemp and hemp products, including food, fiber, construction materials, energy storage, nutritional supplements, and personal care and wellness products.

Finally, hemp might actually lead the way to the legalization of cannabis in general. For one thing, it still has powerful supporters looking to make its legalization permanent. Then there is some indication that the FDA is considering removing hemp from the list of the country’s most dangerous controlled substances.


October 18, 2018 at 10:12 am 1 comment

Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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